Can an LLP be used by a sole trader?

Can an LLP be used by a sole trader? If you are planning on forming a business as a sole trader, with just you in the firm and no one else, you might think it's not possible to have a limited liability partnership (LLP), which after all requires that there be partners in the enterprise. But you can always register a dormant company and use it as a partner in the LLP.

Forming an LLP requires a minimum of two members, and in this case, if you want to be self-employed, you can use yourself as one member and the dormant company as the other. You won't be running two businesses, because one will be inactive; all you'll need to do with the dormant firm is file annual returns, even though there's nothing on the balance sheet. You must do this or you will be subject to automatic penalties and fines.

At Coddan, we offer an easy and cost-effective way to get your own dormant company that you can use in forming an LLP for your sole-trading business. Under British law, a dormant company is one that has had no significant transactions during the financial year.

In order for the company to remain dormant, there cannot be any paid employees of it as salaries would be listed in the accounts filed to Companies House. All dormant companies, however, must have at least one director, which in this case would be you because you're going to use this dormant firm to create an LLP.

We offer the incorporation of dormant companies from as low as £100 with no extra charges. The application can be made online, using a form on our website. It streamlines the incorporation process and makes it simple and quick to get your dormant company registered.

As a sole trader, you have total control over your operations. This gives a great sense of freedom in running your business, but there are also serious risks and liabilities as well as responsibilities in being a sole trader. If the business gets into debt, for example, the sole trader alone is responsible for it - devising ways to increase revenue and pay off creditors. One of the main advantages, of course, is that if the business is profitable, there's no need to split or share the profits because they're all yours.

If you establish an LLP for the purposes of being a sole trader, using a dormant company to do so, technically you do have a partner in the business, but it’s a company that's owned by you.

The real benefit of doing this is that it combines the advantages of the sole trader with those of a limited company. There are also tax advantages to incorporating this way, because trading that is done by the LLP is taxed as though conducted by the individual members of the LLP.

Also, company profits are subject to lower tax if it's an LLP, whose members pay income tax as sole traders. But bear in mind that as the profits are treated as members' income - in this case only yours - they are subject to income tax. It really depends, then, on how much profit the company makes and how much is paid to the owner.

You don't have to be from, or in, the UK in order to form an LLP; you can be anywhere in the world and still do it as there is no legal requirement as to nationality. The dormant company you use to set up the LLP does not have to be in the UK either.

If you incorporate a dormant company with us and use that to form an LLP for your sole-trading business, you will receive from us all the necessary paperwork that is issued by Companies House.

Matters such as this can often seem overly complicated to the newcomer, so it's best to talk directly to the experts and they can guide you straight through the LLP incorporation process.

At Coddan we have many years of expertise in LLP incorporation – as well as follow-on assistance and advice, including management and administrative issues – and have a team of consultants available to speak to clients.